Independent depositary firm INDOS Financial is now offering a new ESG oversight service, which will be led by Matthew Queree, the company’s newly-appointed Head of ESG Oversight.
INDOS Financial, now has USD28 billion of assets under its oversight, plus a further USD16 billion over which the 32-strong firm performs money laundering reporting officer functions.
CEO Bill Prew (pictured) explains his role as an independent depositary, as one where his firm is free of conflicts with other service providers of a fund and provides valuable oversight over fund operations.
The idea of offering an ESG service has come from INDOS’s connection in a depositary capacity with a couple of Impact Funds.
“We have been looking at complementary ways we can broaden our service offering beyond depositary,” Prew says. “We see that ESG is a significant growth area within the industry, and one that is not going to reverse with increasing emphasis being placed on ESG by investors and regulation.”
“So, our thesis is that we have five years of track record performing independent fund oversight as a depositary that we can leverage to offer similar oversight of managers and funds and their ESG compliance.”
Prew points out that that some large institutional investors will have formal ESG screening processes in place over their investments.
“But the majority of the industry would benefit from an oversight service that provides investors with confidence that managers are complying with their ESG policies.”
There are challenges on both the quantitative and qualitative side of ESG – the actual ESG screen against what is within the portfolios, as well as assessing compliance with ESG policies.
“We are not going to perform analysis of individual stocks or companies, there are already a number of firms that provide this service,” Prew says. “We can use this and other market data within our existing in-house developed DEPOcheck technology to assess portfolios against ESG criteria, and we are partnering with Prime Advocates who have many years of ESG experience in implementing ESG policy.
“You need to take the manager’s policies and perform a desk top audit to see how they have been applied in practice – investors want to know it’s not just a policy that’s kept in a drawer. In partnership with Prime Advocates we will have the breadth of experience to deliver an oversight service that will provide assurance to investors as well as add value to managers”.
Prew’s plan is to produce a product that will ultimately get managers onside if they recognise the value of independent reporting.
“It’s not just a comfort,” Prew says. “Managers will buy into it because if they make a modest investment they can demonstrate to their investment base that they are taking ESG seriously.”
The firm’s aim is have the service fully up and running by the end of the first quarter of next year. At the moment the team at INDOS are meeting data providers in the ESG space, adapting their DEPOcheck technology and talking to a number of managers, spanning hedge funds to private equity funds, that will be case studies.
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